Face Value of Shares Explained
If you invest in stocks, you may have seen the term “face value.” Many beginners ignore it, but it plays an important role in corporate actions.
Let’s understand face value in a simple and practical way.
What is Face Value of a Share?
Face value is the original value of a share decided by the company at the time of issuing shares.
It is also known as:
- Par value
- Nominal value
For example:
A company may issue shares with a face value of ₹10.
This value remains constant unless the company changes it through actions like stock splits.
Face Value vs Market Price
Many investors confuse face value with market price.
Here’s the difference:
- Face Value → Fixed value set by the company
- Market Price → Current trading price in the market
Example:
- Face Value = ₹10
- Market Price = ₹500
The market price changes daily, but face value usually remains the same.
Why Face Value is Important
Face value plays a key role in several corporate actions.
Dividend Calculation
Dividends are often declared based on face value.
Example:
- Face Value = ₹10
- Dividend = 50%
Dividend amount = ₹5 per share
So, understanding face value helps you calculate actual returns.
Stock Split Impact
In a stock split, the face value changes.
Example:
- Face Value ₹10 → ₹5
The number of shares doubles, and the price adjusts accordingly.
This is why face value is important in understanding stock splits.
How Face Value Works
Face value is used mainly for accounting and corporate actions.
It helps determine:
- Dividend payouts
- Stock split ratios
- Share capital of the company
However, it does not reflect the actual worth of the company.
Should Investors Care About Face Value?
Face value is not a major factor for daily trading decisions.
But it is important when:
- Evaluating dividends
- Understanding corporate actions
- Reading company financials
Key Tip:
Focus more on fundamentals and market price, but don’t ignore face value completely.
